Creative Destruction

Creative Destruction

The term “Creative Destruction”  was coined by Joseph Schumpeter, an Austrian-American economist in his work “Capitalism, Socialism and Democracy”, first published in 1942. He derived it from the works of Karl Marx. Joseph Schumpeter popularized it as a theory of economic innovation and the business cycle. The term is also used in other areas like technology, marketing, product development,etc. He described creative destruction as the process that occurs when something new kills something older. According to Schumpeter, creative destruction describes the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. Schumpeter believed that the process of creative destruction is the essential fact about capitalism. It will lead to the eventual failure of capitalism as an economic system.

The effects of creative destruction are sometimes referred to as Schumpeter’s gale. Schumpeter believed that entrepreneurs set this process of creative disruption in motion.As these entrepreneurs create more advanced technology or more sophisticated organizational structures, they increase the efficiency of production. Creative Destruction is a common occurrence in industries, since, industries depend on innovation in order to be successful and be ahead of their competitors. Schumpeter observed that creative destruction resulted in many people losing their jobs, and hence ruined companies. Societies that allowed creative destruction to operate grew more richer and productive. Cost-cutting measures like downsizing and outsourcing are also considered as methods of creative destruction. The thought behind this is that though these measures will lead to reduction in the workforce but they will enable a transformation of the business.

A modern example of creative destruction is the way in which pen drives have replaced CDs . Pen drives are more convenient to carry around. Emergence of pen drives have decreased the economic value of CDs. A similar example is the replacement of floppy disks by CDs. CDs destroyed the floppy disk industry , but in doing so, entrepreneurs created one of the most important inventions of this century.

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14 Comments. Leave new

  • Chitranshi Garg
    April 25, 2015 4:58 am

    Well written!

    Reply
  • Shatakshi Bhargava
    April 30, 2015 11:00 am

    Every coin has two sides and so does creative destruction. The economy must allow some level of creative destruction and state its limit so that people aren’t disadvantaged due to this. Nicely written!

    Reply
  • Kriti Sethi
    May 14, 2015 6:49 am

    Great work Anusha! 😀 And I never really pondered over this concept of creative destruction but now it is seemed like an oxymoron. You’re creating and destroying simultaneously, or perhaps simply explains that new and better creations replace the old existing one leading to their destruction.

    Reply
  • Kriti Sethi
    May 14, 2015 6:50 am

    *now it seemed

    Reply
  • Komal Singh
    May 14, 2015 9:35 am

    well written great job !

    Reply
  • It’s a tiring but a necessary concept, especially since you’ve mentioned that it curbs capitalism.

    Reply
  • wonderful post!!!

    Reply
  • Aikankshi Gupta
    June 8, 2015 9:56 pm

    nice concept.

    Reply
  • Stephy Paul
    June 11, 2015 3:47 pm

    The title looked like a paradox.. Anyway well explained

    Reply
  • Vasundhra Maheshwari
    July 9, 2015 3:51 pm

    loved reading it.very informative and amazing title

    Reply
  • Rima Thakkar
    July 30, 2015 8:31 am

    Creative destruction is the ritual followed by any of the companies today in order to succeed. But the decision has to be taken wisely. sometimes in order to bring up the new product companies kill something that is still profitable and it results in heavy loss for the company. Example, when coke bought thums-up from parle, they tried to kill it badly by creative destruction but could not do so because of consumers and hence they had to bring product back to the market and now it is no.1 selling beverage in the country

    Reply
  • Well written

    Reply
  • commendable work

    Reply
  • Gunjan Kapoor
    October 1, 2015 3:02 pm

    Very well written!

    Reply

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